Oil prices are rising as Venezuela tariffs threaten to limit supply - Rystad Energy’s oil market update

Starting 2 April, the countries buying oil and gas from Venezuela will face a 25% tariff on trade with US.

These secondary tariffs are an indirect sanction to degrade Venezuela’s oil supply capability and hurt China’s teapot refining system.

Chevron’s license to produce oil in Venezuela has been extended to May 27.

This provides some further negotiating leverage to the US in dealing with secondary tariffs with other countries.

It is from the same playbook as sanctions on Chinese refinery dealing in Iran crude given this may be most cost effective to deal the challenge at sink vs. source.

Oil prices are trading mostly flat and we’re still waiting for the next move in either direction.

The market understands that the US is taking chances during this period to get deals done before the summer.

Between March and August, the refinery's crude demand increases about 2-3 million barrels per day.

On 4 March, Chevron was given just 30 days to wind down operations in Venezuela impacting about 230,000 barrels per day (bpd) out of a total Venezuelan output of 1 million bpd.

Rystad Energy’s estimate that if Chrevon leaves, production can fall to as low as between 700,000 and 750,000 bpd by December this year.

With new tariffs on buyers, total Venezuelan production could fall to much lower levels.

Apart from China, the other nations that will get impacted include India and Spain.

Venezuela does not have robust refining system to divert crude oil for its own consumption either.

Domestic refineries can only process about 250,000 barrels per day.

The tariffs will undoubtedly have a significant impact on the country’s oil production.

However, the impact on supply and demand balances will be muted, as China’s imports of Venezuelan crude has been much lower in the first two months of 2025.

The US is also a buyer of the barrels from Venezuela and possibly will look for alternative suppliers of heavy sour crude from OPEC+ nations like Iraq.

This news could have had positive repercussions for the other major heavy sour producers like Mexico, Iran, Russia and Canada, but all of these countries are facing their own tariffs challenges.

If the US policy of sanctions on buyers and sellers of crude stretches into the summer, or if OPEC+ exercises restraint on returning its barrels to the market, the stage will be set for oil prices in the $85 to $90 range.

OPEC+ understands that higher oil prices will further impact demand and tempt the members towards non-compliance.

The most likely outcome is that OPEC+ will carefully unwind its production cuts to keep prices near the $75 sweet spot.

How the Russian ceasefire negotiations develop and the impacts on crude flows is key to watch in the coming days and weeks.